HONG KONG/MADRID Spanish lender BBVA (BBVA.MC) agreed to sell $1.27 billion of CITIC Bank Corp (601998.SS) shares to bolster its capital, becoming the latest foreign bank to start unwinding often difficult Chinese partnerships.
Spain's second-biggest bank by market value is selling a 5.1 percent stake in the Chinese lender to state-owned parent group CITIC Ltd. That will leave BBVA with 9.9 percent, just below a regulatory threshold that would penalize it for owning shares in another bank.
Tougher global rules on banks' capital ratios and their ownership of financial institutions have forced BBVA and others to set aside more cash and sell holdings in foreign lenders.
Several major U.S. and European banks including Bank of America (BAC.N) and Switzerland's UBS UBSN.VX have already sold out of Chinese lenders, cutting back partnerships that could be profitable on paper but were not always productive at an operational level.
The foreign exits also come as the Chinese banking system is showing signs of stress, with bad loans picking up as economic growth slows.
BBVA said on Thursday it would make a cash loss of up to 120 million euros ($161.90 million) from the CITIC sale. It will also take a 2.3 billion hit to 2013 earnings after reducing the value of CITIC shares remaining on its books to the market price.
Analysts at Sabadell said the losses would almost halve their 4.7 billion euro forecast for BBVA's net profit this year.
BBVA said the sale would free up 2.4 billion euros of capital under Basel III rules, which start to come in next year. The rules penalize lenders for holding stakes of more than 10 percent in other banks.
Unlike BBVA, Bank of America generated a paper profit more than five times the original cost of its investment in China Construction Bank Corp (CCB) (601939.SS) when it ended the eight year-old partnership in September.
BBVA said in 2009 it had invested a total of about 3 billion euros in CITIC.
Shares in BBVA and CITIC Bank, China's 10th-largest lender by market value, were little changed on Thursday.
TRICKY CHINESE VENTURES
Foreign banks snapped up stakes in Chinese lenders as they prepared to list on stock markets five to six years ago.
The partnerships were meant to give them a foothold in the world's second-largest economy and enable Chinese banks to gain expertise in developing new products and risk management.
But some of the ventures have been slow to bear fruit. BBVA, which entered China seven years ago, has yet to close a merger and acquisition deal as an adviser in Asia yet, for example.
BBVA's move has turned investors' attention to another Spanish bank holding in a Chinese lender - Caixabank's (CABK.MC) 15.9 percent stake in Hong Kong-based Bank of East Asia Ltd
HSBC Holdings Plc (HSBA.L) also has a 19.9 percent holding in China's Bank of Communications Co Ltd (601328.SS).
BBVA said the sale of part of its CITIC stake will allow it to try a new strategy in China, working with its partner on a non-exclusive basis.
"BBVA plans to open a fully-operational branch in China, something that we couldn't do before," BBVA's Chief Financial Officer Manuel Gonzalez Cid said, adding that China remained attractive in part because of trade-finance links with Latin America, where BBVA has big operations.